Indian Rupee resumes decline as markets embrace hawkish Fed view

• The Indian Rupee drops against the US Dollar after rising significantly in the last two trading days.
• The Fed is almost certain to deliver at least one more interest rate hike this year.
• US President Trump sees deal with Iran after midterm elections.

The Indian Rupee (INR) trades lower against the US Dollar (USD) on Wednesday after rising in the past few trading days. The USD/INR pair is marginally up to near 95.75 as the US Dollar outperforms amid firm expectations that the Federal Reserve (Fed) will extend its monetary tightening cycle for the remainder of the year.

As of writing, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.25% higher to near 100.80, the highest level seen in over seven weeks.

The CME FedWatch tool shows traders see an almost 90% chance that the Fed will deliver at least one more interest rate hike this year.

What’s driving hawkish Fed expectations

Analysts at MUFG note that these rate expectations “were supported by hawkish comments from regional Fed presidents although neither are voting members this year.” In particular, Chicago Fed President Austan Goolsbee, who “will become a voting member again from next year,” cautioned that “supply shocks have come more frequently, hit harder and lasted longer and once supply shocks to inflation become persistent, some of the logic behind ‘looking through’ no longer holds,” reinforcing the case for an extended period of tighter Fed policy.

On Tuesday, Richmond Fed Bank President Thomas Barkin, who is also currently a non-voting member, said that more interest rate hikes will be required to tame inflation. However, he didn’t provide any specific guidance regarding how much higher interest rates could go. "Will additional hikes be required, and how many? ​We'll see," Barkin said, Reuters reported.

Oil prices extend the decline

Oil prices continue to remain under pressure on hopes of diplomacy between the United States (US) and Iran, a scenario that will ease energy supply disruption through the Middle East. The optimism over US-Iran diplomacy boosted after a report from Kyodo News showed that a senior Iranian official confirmed Tehran sending proposal to the US via mediators, which states that Iran would reopen the Hormuz Strait within seven days in return of Washington’s military de-escalation near their seaports.

In the opening session, the MCX Crude Oil contract expiring on October 19 is down 1.43% to near Rs. 8,520, the lowest level seen in two weeks.

Lower oil prices bode well for currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs.

In a speech at United Nations (US) General Assembly on Tuesday, US President Donald Trump said that either Washington will make a deal or will drive the nation to hell. “I have a big decision to make on whether to make a deal or drive Iran into hell with no chance of survival and no hope of future greatness or generations.” Trump said. He reiterated stress that Iran will never have a nuclear weapon and the deal with the nation will be made right after midterm elections.

India's preliminary HSBC PMI remains stronger in Steptember

India's flash HSBC Composite Purchasing Manager's Index (PMI) data for September has come in stronger. The Composite PMI jumped to 56.5 from 54.3 in September due to robust manufacturing and service sector activity. “Activity in the private sector gained momentum, led by stronger manufacturing. Output and new domestic orders rose at faster rates,” said Pranjul Bhandari, chief India economist at HSBC. She added that renewed tensions in the Middle East had prompted firms to build buffers to manage uncertainties, while price pressures strengthened among manufacturers.

USD/INR Technical Analysis

In the daily chart, USD/INR trades at 95.75, holding a mild bullish bias as spot remains above the 20-period exponential moving average (EMA) at 95.54. The positioning over this short-term EMA suggests underlying demand, while the Relative Strength Index (RSI) at 56 stays just above the neutral 50 line, hinting at steady rather than aggressive upside momentum.

On the downside, immediate support is seen at the 20-period EMA near 95.54, which reinforces the current floor under prices. Looking up, the September 17 high near 96.10 is the critical hurdle; above that, the pair might aim to revisit the all-time high near 97.10.

(The technical analysis of this story was written with the help of an AI tool. Know more.)